Santander’s Latin American business has allowed the bank to cope with a squeeze on lending margins in Europe that is pressuring its rivals in Spain, such as BBVA (BBVA.MC) and Caixabank (CABK.MC).

In Brazil, where the bank makes more than a quarter of its profits, net profit rose 7 percent from a year ago, boosted by solid loan growth.

But in Britain, its third-biggest market, profit fell 23 percent, as impairment losses rose to 60 million pounds in its global corporate banking business. This was mainly due to an additional charge for one customer, which moved to non-performance in 2017, as well as an impairment charge for a 2018 drawdown related to the collapse of British construction firm Carillion (CLLN.L).

Santander, the euro zone’s biggest bank by market value, made a net profit of 2.05 billion euros ($2.5 billion) in the first three months of the year, from 1.87 billion euros a year ago. Analysts had forecast 2.01 billion euros in a Reuters poll.

Net interest income (NII), a measure of earnings on loans minus deposit costs, was 8.45 billion euros, up 0.6 percent from a year ago but down 1.8 percent against the previous quarter.

Analysts had expected a NII of 8.49 billion.

Santander's shares were the biggest fallers on Spain's leading index Ibex-35 .IBEX with a 2.0 percent decline. They were also one of the biggest fallers on Europe's STOXX banking index .SX7P at 0945 CET. In the last month, Santander shares had gained 7 percent.

Analysts said results were mostly in line and highlighted a strong performance in Latin America and the United States, but weaker than expected core revenues in the UK.

Analysts at Deutsche Bank said Brazil remained a bright spot for the bank. “Overall, the results support our thesis of Brazil being the growth engine for the bank, more than offsetting the pressures seen elsewhere in Spain and the UK,” they said in a note.

SIGNIFICANT U.S. GROWTH

Executive chairman Ana Botin said the year had started well, with the group generating double-digit profit growth driven by strong results in Brazil, Spain and Mexico, and improved performance in the United States.

In the United States, net profit rose 32 percent. Santander recently said it was confident its U.S. business would achieve “significant” profit growth over the next few years as it continues to optimise its capital structure.

Spain became the bank’s second-biggest market in the first quarter after it consolidated Popular into its accounts in the third quarter after taking it over in June. Net profit in Spain rose 26 percent, though NII remained under pressure versus the previous quarter due to low interest rates.

Also in the first quarter, Santander completed its agreement with U.S. private equity company Blackstone to transfer 51 percent of Popular’s toxic real estate portfolio and said it would continue to reduce its real estate exposure in the coming quarters. Following this deal, its exposure fell to 5.2 billion euros.

As with other Spanish banks, Santander has taken advantage of a rebound in the Spanish property market to tackle toxic balance sheets faster than rivals in Italy..

Santander reaffirmed its 2018 targets such as achieving double-digit earnings per share growth.

It ended the first quarter with a fully-loaded core capital ratio, a closely watched measure of a bank’s strength, of 11 percent, compared to 10.84 in the previous quarter, and in line with its target for 2018.